Industrial & Commercial Bank Ltd v P. D. International Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 15 November 2002
• Date: 15 November 2002
• Docket Number: Originating Summons No 601461 of
• Court: High Court (Singapore)

Industrial & Commercial Bank Ltd

Plaintiff

and

PD International Pte Ltd

Defendant

[2002] SGHC 269

S Rajendran J

Originating Summons No 601461 of 2001

High Court

Banking–Lending and security–Bank providing credit facilities to two subsidiary companies of corporate guarantor–Guarantor depositing certain shares as additional security for facilities granted to one subsidiary–Whether guarantor depositing shares as security for facilities granted to that subsidiary only or for all obligations of guarantor–Contract–Mistake–Common mistake–Application for rectification of terms of security memorandum on ground that terms not consistent with bank's internal documents and parties' intention–Evidence–Admissibility of evidence–Whether evidence in affidavit admissible if deponent not present for cross-examination

The plaintiff (“ICB”) provided credit facilities to PD Manufacturing International Pte Ltd (“PDMI”) and Manufacture Element Prefabricate Pte Ltd (“MEP”), both subsidiaries of the defendant (“PDI”). PDI issued separate corporate guarantees to secure those facilities. Subsequently, PDI executed a security memorandum in favour of ICB to deposit shares (“the Twinwood shares”) as additional security for the MEP facilities. The security memorandum was in ICB's standard form and stipulated that the deposit was to secure all PDI's obligations to ICB.

When PDMI defaulted on its credit facilities with ICB, ICB sought to enforce the security memorandum against PDI. PDI challenged ICB's right to do so, alleging that the Twinwood shares had been deposited as security for the MEP facilities only. ICB sought a declaration from the court that the Twinwood shares stood as security for PDI's liability under the PDMI guarantee and that ICB was entitled to sell the shares pursuant to the terms of the security memorandum. PDI's defence was that the terms of the security memorandum did not accurately reflect the intentions of the parties and sought to rectify the security memorandum. PDI also contended that as one of ICB's witnesses was not available for cross-examination on her affidavit, the court should reject the affidavit.

Held, dismissing the application and allowing rectification of the security memorandum:

(1) ICB's parent bank's internal documents showed that ICB was seeking to hold the Twinwood shares only until such time as the MEP account was regularised. It appeared to have been expressly envisaged at that time that the Twinwood shares would be released when the MEP account was regularised. The internal documents were not consistent with the Twinwood shares being held as security for any purpose other than in connection with the MEP account: at [32] to [34].

(2) The draft security memorandum was not sent to PDI as a draft that was to serve as a basis for further negotiations: at [35].

(3) PDI showed convincing proof that the security memorandum that was signed did not accurately reflect the intention of either party: at [38].

(4) The admissibility of affidavit evidence where the deponent of the affidavit was not available for cross-examination in the hearing of an originating summons depended on the circumstances of the case. As the issues raised by the affidavit of this particular witness did not contain any seriously contentious matters, leave was granted to ICB to rely on the contents of the affidavit even though the deponent was not available for cross-examination. The fact that PDI was not able to cross-examine ICB's witness on matters not covered by her affidavit was a matter the judge could take into account in assessing the overall merit of each party's case: at [21] to [23].

Kok Lee Kuen v Choon Fok Realty Pte Ltd [1996] 1 SLR (R) 688; [1996] 2 SLR 572 (refd)

Taylor Barnard Ltd v Tozer [1984] 1 EGLR 21 (distd)

UMBC Finance Ltd v Woon Kim Yan Robin [1990] 3 MLJ 360 (refd)

Rules of Court (Cap 322, R 5, 1997 Rev Ed) O 38 r 2 (2)

Hri Kumar and Gary Low (Drew & Napier LLC) for the plaintiff

Vinodh S Coomaraswamy and Chua Sui Tong (Shook Lin & Bok) for the defendant.

Judgment reserved.

S Rajendran J

Background

1 The defendant, PD International Pte Ltd (“PDI”), had a number of subsidiary companies in Singapore. Amongst these were PD Manufacturing International Pte Ltd (“PDMI”) and Manufacture Element Prefabricate Pte Ltd (“MEP”).

2 In 1995, the plaintiff, Industrial & Commercial Bank Ltd (“ICB”), provided various credit facilities to PDMI. The PDMI facilities were secured by a corporate guarantee issued by PDI dated 12 September 1996 (“the PDMI guarantee”).

3 In October 1996, ICB approved a revolving credit facility of $10m (later raised to $12m) to MEP (“the MEP facilities”). The MEP facilities were secured by a corporate guarantee given by PDI as well as by the deposit of shares in Ace Dynamics Ltd (“ADL”) - a public-listed company - on an approved advance margin of 66.6% of the market value of those shares.

4 Soon thereafter, the market value of ADL shares began to decline. In order to remain within the margin limit, MEP in late 1997 deposited a sum of $1.5m to reduce its outstandings. The market price of ADL, however, continued to slide. To avoid the sale of the ADL shares by ICB, arrangements were made - pursuant to various discussions between Jean Cheang (“Cheang”) of ICB, and Poh Ah Tee (“Poh”) and Ms Yap Ming Choo (“Yap”), the Managing Director and the Group Financial Controller respectively, of PDI - for PDI to deposit shares in another listed company, namely, Twinwood Engineering Ltd (“Twinwood”), with ICB.

5 Upon agreement being reached, ICB sent the standard security memorandum form of ICB to PDI for execution. ICB also required that the board of PDI authorise the execution of the security memorandum in the following format:

Resolved that authority be and hereby given to any director to sign on behalf of [PDI] the Security Memorandum for the deposit of 25,763,016 of its shares in the capital of [Twinwood] with [ICB] for the facilities extended by [ICB] to its wholly owned subsidiary [MEP].

That resolution was signed on 17 December 1997. On the same day, the security memorandum was executed on behalf of PDI by Chua Sok Khim (“Chua”), a director of PDI. It was the evidence of Chua that she had been told by Poh and Yap that the deposit of the Twinwood shares were to secure the MEP account. That was also what the board resolution of PDI stated. She testified that had she known that under the terms of the security memorandum the Twinwood shares would also be security for PDI's other liabilities to ICB, she would not have signed.

6 The security memorandum and the board resolution, together with the Twinwood shares, were thereafter sent to ICB. Subsequently, in July 1998, PDI deposited a further 4,896,984 Twinwood shares with ICB, making a total of 30,660,000 shares. This further deposit was, as required by ICB, authorised by the board of PDI in a resolution couched in language similar to that of the resolution of 17 December 1997, ie as security “for the facilities extended by...